Contemplating a charity merger? 6 questions to ask

Charities are in crisis. An estimated £4bn of income was lost during the first three months of the pandemic. Cuts to funding will impact the ability of charities to reach communities that are already under increased stress. To date, government support packages seem to miss the importance of the charity sector and the role it plays in the UK.

Mergers between charities are rare, but Covid-19 has upended the sector. We are hearing more charities contemplating mergers and starting conversations. Some of these are “takeovers” in all but name, whilst others are more authentically mergers of equals.

At Firetail, we’ve worked on charity mergers and partnerships of all flavours. We’ve worked with spin-outs, coalitions, alliances and federations on pre-merger planning and post-merger integration. As a result of this experience, along with conversations with leaders in the sector we have a clear idea of what it takes to make mergers work.

We believe every successful charity merger is built on the platform of a positive plan, not just a defensive response to a crisis.

Mergers that were a good idea before the pandemic may well still be a good idea now, and the crisis has created the urgency needed to cut through the minor objections and make progress possible. Mergers that were a bad idea before the pandemic are probably still a bad idea now. The risk is that in looking for a lifeboat, people will consider mergers as a means of survival. This is fraught with challenges.

If you are embarking on these conversations, here are six questions to ask yourself:

1. Are you focussed on future impact or cost savings?

Cost savings, especially in a world of crisis and declining income, are often the first reason to consider combining two charities.

However, in our experience, merging a charity is so difficult that justifying a merger based on cost savings alone rarely stacks up. The real gain in mergers is in the opportunity for the combined charity to have a greater impact.

Opportunities to increase impact - for example through extending services, reaching new beneficiaries, investing in growth, having a stronger voice or implementing new ways of working - justify the work. Be clear on the assets each charity brings and how each will contribute to greater impact in the future.

2. Are people ready to compromise?

It is far easier to stop a charity merger than to complete one. Everyone needs to be on board. Successful charity mergers only succeed with humility. Mergers need compromise and leave little room for individual agendas. In our experience, individual egos can be major blocks to the process. The pandemic - and the high stakes - is bringing some clarity to these objections. Even so, getting staff and trustees on board, building momentum and fostering the right culture is a huge job.

3. Are you going in the same direction?

If there is a big difference in strategic direction, merging might not make sense - or you might be storing up problems down the road. This is less about individual egos and more about a different analysis of the world. Charities can appear very similar, but if each charity has a fundamentally different theory of change, it may be a good idea to consider different forms of collaboration and partnership.

In practice, these issues are often too hard to recognise in the heat of a merger conversation, especially one conducted with urgency or in crisis conditions. You assume you’re talking the same language. People assume that with good faith these things can be sorted out. Even so, it’s important to make time for conversations about the future to tease out these differences and find common ground.

4. Are you talking to your communities?

Mergers are not just the incorporation of two organisations. Charities sit in diverse and extended networks. Successful mergers acknowledge this. You will be merging two (often overlapping) communities, two sets of stakeholders, two sets of supporters and two sets of beneficiaries. Think about these wider communities, the story you’re going to tell them and the role that they can play in making the combination successful. The more open and collaborative you can be, the better. Successful engagement with your wider community can often help create the momentum a new charity needs to succeed.

5. Are you ready for a standstill?

Mergers are difficult - legally, organisationally, financially and culturally. Managing a merger requires time and effort from trustees and senior management. You are likely to underestimate the cost of change. You have to keep core services running. Other big projects will have to wait. Chief Executives have said that their charity comes to a “standstill“ - often for 12-24 months - as post-merger integration takes place. This reinforces the first point; it has to be worth it on the basis of more than just cost savings. Only the long-term benefits of the merger can absorb the cost of the transition. Other forms of collaboration are possible - it all depends what you are trying to achieve.

6. Are you ready to be ruthless?

This is a tough message, hard-learned through experience. Having two charities fail together helps no-one. In the current environment, many organisations are going to be in trouble. People may see mergers as a route to survival. Now is a time to be clear-eyed.

The way to ensure the maximum possible impact for people in the long term may not be to combine with a failing organisation. If a service has already been closed, can it be reopened? If a fundraising portfolio has collapsed, how will it recover? If a big liability exists, how will it be repaid? If a major donor has withdrawn, how will they be replaced? Teams need to be honest here.

Do your due diligence, don’t hope for the best. Be mindful of the risks. Prioritise impact, not organisations.

Charity mergers can be worth it, but they are hard. You need to go into them with your eyes open. Despite these caveats and challenges, there is a still case for more proactive activity in the sector. If you can answer these questions clearly and positively, then you will have a far greater chance of success.

Firetail has supported social progress organisations of all sizes deliver different types of mergers, alliances and partnerships. We can support in the early stages of developing options through to post-merger integration. If you would like to learn more about the support Firetail can offer on this subject, please email rachel@firetail.co.uk.